What happened
Friday was a tough day for the broad market, but a terrible session for a handful of stocks from the streaming sector. Ringleader Netflix (NFLX 0.02%) led the charge, losing nearly 22% following alarming news regarding its probable subscriber growth. Shares of fellow streaming industry cohort Roku (ROKU -1.23%) tumbled more than 9% as well on Friday, however, as investors extrapolated Netflix's news. Even outfits like cable content providers AMC Networks (AMCX -1.57%) and Discovery (DISC.A) (DISCK), (DISC.B) along with fuboTV (FUBO -2.90%) fell more than most today, deemed guilty by their mere association with Netflix's business model.
So what
It could have been worse. Netflix managed to add another 8.28 million subscribers to its customer roster during the three-month stretch ending in December, just missing its guidance by around 200,000 people. Its outlook for the quarter currently underway, however, is more discouraging. Netflix says it's expecting net adds of 2.5 million customers for the period ending in March, well short of the 6.26 million consensus estimate that the analyst community was modeling. The company's suggested figure is also a clear slowdown from the 4 million paying subscribers it added during the first quarter of 2021. Another price increase is also in the cards. The stock resultingly logged its biggest single-day loss since 2012.
Image source: Getty Images.
In most regards, though, Netflix's disappointing numbers aren't just about Netflix. They also serve as something of an indictment for the entire streaming industry, up to and including names that aren't just premium streaming companies.
Cases in point: Roku's streaming receiver business is still robust, yet its stock fell 9%. FuboTV was off by 9.4% today by virtue of being a streaming cable television platform. Although they're still cable television production studios, AMC Networks and Discovery are also building direct-to-consumer products that could eventually negate the need for cable companies. Discovery now boasts 20 million streaming subscribers, and its stock fell nearly 5% today. AMC Networks shares were off by 7.6% on Friday, seemingly punished for its 9 million streaming subscribers.
Now what
And there's the rub. How does one distinguish between the knee-jerk selling that's only caused by a peer stock's meltdown and a legitimate weakness? In a similar vein, can an investor reasonably expect an individual stock to easily bounce back from this sort of selling, even if the rationale for the sell-off never was particularly sound?
The answer to the second question is, no -- when the sellers are this adamant, it's best not to stand in their way until it's clear the rout has run its course. Corrections born out of a herd mentality usually end the same way. But like any actual animal stampede, once a groupwide sell-off starts it's difficult to stop. What appears to be the beginning of a marketwide correction only bolsters the near-term bearish case.
For patient investors looking further down the road, these sell-offs are ultimately buying opportunities.
Largely being overlooked right now is the fact that Netflix's tepid subscriber growth numbers can at least be partially chalked up to the sort of growth that Discovery, AMC Networks, and even Roku are achieving, now that Roku is operating its own ad-supported streaming channel. Consumers are finding more specialized and/or free streaming content options, creating customized competition that generalized Netflix has never really faced. The tricky part will simply be letting these other stocks continue falling until a clear bottom is reached.
